Guest Post by Thomas Harjes and Fabio Fois (Barclays) | Despite the softer November inflation print and some likely downward revisions in the ECB’s inflation and growth outlook next week, we do not expect the ECB to announce further policy easing when the Governing Council meets on Thursday, 4 December. We believe the ECB is going to wait at least another month.
MADRID | The Corner | By J.A. Santos | The stock market value of the 60 Spanish firms that we analysed reached €615.973 billion at the close of November 2014. This represents a +6.7% increase with respect to 2013. According to the market consensus, the weighted average earnings per share is €0.85 (-27.9% vs 2013).
MADRID | The Corner | Markets are already discounting the ECB’s QE of sovereign debt. That is why the risk premiums of the European periphery are now at historical low levels –take the Spanish one, for instance, which has dropped to 108 points. The yield of the 10-year bond has fallen to 1.85%. In this context, a sovereign bond purchase program still makes sense. “The latest inflation data of the Eurozone, which are at 0.3%, are a clear indicator of that,” Felipe López-Gálvez, expert at Self Bank, explains. However, the program would not acquire a full meaning until the German economy showed signs of weakness. “If Germany holds on,” then the ECB will not come to that extreme.
The launch of the Hong Kong – Shanghai Stock Connect gives foreign investors unprecedented access to the Chinese stock market by simply opening an account in Hong Kong. While the new scheme provides undoubted opportunity, systemic flaws in China continue to cause concern.
MADRID | The Corner | Inflation in the eurozone is not picking up. Expectations aren’t either. And the ECB’s balance sheet expansion is almost inexistent. PMI indicators (which the central bank is closely watching) are trending downwards. In this context, Barclays analysts comment, it is not strange that markets are expecting more QE from the Frankfurt. But when? Probably not this week.
MADRID | The Corner | The leading indicators of the manufacturing sector both in Europe and the US will be announced on Monday. China’s indicators showed an economic slowdown of the sector, which could force the government to implement new stimuli measures. Together with the service sector index, which has a bigger impact on the developed economies, these indicators will show -again, two divergent scenarios: 1) the American economy keeps on growing at a good pace after two quarters in which the GDP increased more than 4% on average, 2) the economy of the Eurozone continues its slow expansion, but there is a threat of stagnation, according to experts at Link Securities.
MADRID | The Corner | Trading trends in the Euro today are expected to be determined by the Euro-zone’s crucial CPI data. As happened yesterday with Spanish and German data, consumer prices are expected to do down in November, due to an energy prices drop. Will the European Central Bank feel any pressure to act? Then bad news could turn a blessing for financial markets.
MADRID | By JP Marín Arrese | Up to now, all devices planned by the ECB to reverse the dismal situation have utterly failed. The medium-term financing facility has gathered little enthusiasm from the banking community. Covered bonds and ABS have proved to be blunders, their turnover limited to a meagre €20 billion per month. This heralded bazooka has petered out well short of its target. Banks are pressing for a widening of eligibility, hoping to transfer bad assets to the central bank. Others suggest a sweeping corporate bond buying thrust that would only benefit big enterprises, thereby introducing further distortions. Short of ammunition, the ECB has just one final weapon to curb the dwindling performance of the economy: sovereign bond acquisitions.
MADRID | The Corner | Chairman at Bundesbank and member of the ECB’s Government Council Jens Weidmann warned -again- that more ECB measures to solve low inflation are difficult and could face legal limits. As markets await for Mr Draghi’s appearance on Thursday, ECB’s Benoit Coeure insisted in a Bloomberg TV interview they won’t “rush to a new decision without knowing.”
MADRID | The Corner | It seems Mario Draghi is preparing the markets and the ECB’s Government Council for further action as soon as next December. Investors are reluctant to trust Mr Draghi’s words, but they seem to be more confident lately. However, this “affair” will come to an end if the ECB does not take effective measures. According to market watchers at Link Securities, markets will closely monitor the ECB’s Government Council meeting, which will be crucial for investors to maintain their trust in the European institution.